Capital Goods - August 2010

Ghost in the machine

By Scott Mooneyham

Not long ago, a crowd in the hundreds — large by the standards of your usual Raleigh political protest — showed up at the Legislative Building. A few milled about the halls. Others tried to buttonhole lawmakers. Some stood outside waving signs, a few reading: “Ban the NC Senate.” They had come to try to save video poker — or rather its latest incarnation, those “Internet sweepstakes cafes” popping up across the state. Many of the protesters must have had no inkling of recent Tar Heel political history, else they would have known, standing outside in the oppressive heat, the only thing they would accomplish was working up a good sweat.

The key event of that history, as it related to their cause, revolved around the previous speaker of the North Carolina House, a man who held that post a record-tying four terms. Jim Black, the mumbling optometrist from Matthews, a Charlotte suburb, became one of the most powerful people in the state. He was once the legislative champion of the video poker industry. Today, he’s in prison. Those two facts aren’t unrelated.

The probe that sent him to the pen was wide-ranging, and the criminal charges to which he ultimately pleaded guilty in 2007 had to do with taking cash from a trio of chiropractors looking for legislative favors. That exchange in a restaurant bathroom may be the basis behind the public-corruption charges, but the FBI investigation began with video poker and the thousands of dollars in donations he took in from an industry operating on the fringes of the law. As much as Black’s former colleagues in the General Assembly would like to forget about it, they haven’t. In 2006, a year before he would resign his House seat in disgrace, legislators voted to ban video poker. A year later, the machines began appearing again in convenience stores, operating as computer sweepstakes games, with customers buying prepaid cards. In 2008, legislators outlawed them again.

But like Ahab trying to kill his white whale, legislators can’t seem to strike a final, fatal blow. Court decisions in three counties last year helped to revive the machine operators and their games. (One ruling has been overturned. Two others are on appeal.) The judges ruled that the ban didn’t cover Internet sweepstakes cafes, where purchasers ostensibly paid not to gamble but for Internet time to play the games. Before long, “cafes” could be found in once-shuttered clothing stores, old warehouses and in strip malls built a few years ago at the height of the real-estate boom.

Operators say they employ 10,000 people in 900 parlors across the state. In trying to save those businesses, they did something rare for any industry: They asked for regulation and taxation, touting the tax revenue that the machines could generate — as much as $500 million a year — as a way for a cash-strapped state to balance its budget.

If the Black corruption probe still haunts the state House, the will of Marc Basnight still prevails in the state Senate. The Dare County Democrat and longtime president pro tem of the upper chamber has never been a fan of video poker. A decade ago, he pushed the Senate to pass legislation prohibiting the games, telling about seeing a child left alone by a parent plugging quarters into a machine. Black and the House blocked the legislation. Ten years later, the House appeared poised to act first to undo those court rulings and ban video gaming a third time. Then House Democrats hesitated, some swayed by e-mails from the machine owners and their employees.

Basnight and his chamber were having none of it. In three days, the Senate stripped the contents from a House bill, rolled new language responding to the court rulings into it, moved the bill through a committee and passed it. A few days later, the protesters showed up at the Legislative Building. They failed to understand that the game was already over. A ghost, the revenant of a man who still lives but is no longer there, haunts the House. On July 7, it passed the Senate bill 86-27.

Even before the House acted, industry officials predicted that the effort would be futile, that technology would again offer a loophole, a way around the ban, which takes effect Dec. 1. People who want to gamble are going to gamble, you know. Some machine owners also argue that legislators are only protecting their own gambling enterprise — the state lottery.

Perhaps the industry will prove correct about the futility. If so, state legislators will have at least made their intent clear to the courts. They don’t want small-scale casinos, no matter what you call them, popping up anywhere and everywhere. They also don’t want to be reminded of a past path to corruption by failing to make that intent clear.